BankThink
StuyTown is 'Exhibit A' for strategic default apologists

Tishman Speyer Properties just handed more ammunition to those who argue that homeowners have no particular moral or civic obligation to stay current on their mortgage payments.

When investors walk away from the largest residential property deal ever, it’s only a matter of time before pundits start asking why ordinary borrowers should be held to higher standards.

Tishman Speyer and its partner, BlackRock, acquired the sprawling Stuyvesant Town and Peter Cooper Village apartment complex in Manhattan for $5.4 billion in 2006. After the weak New York City economy and a court ruling undercut their plan to raise rents, the landlords were unable to service the $4.4 billion of debt used to finance the purchase. Over the weekend the venture decided to turn over the 56-building, 11,000-unit property to its creditors.

It’s hardly the only apartment deal that has tanked as high unemployment undermines occupancy levels and rents and many commercial real estate investors remain shut out of the capital markets. But as The Wall Street Journal noted in its story about the deed-in-lieu-of-foreclosure deal, Tishman Speyer for years represented the gold standard of commercial real-estate dealmakers, reaping high returns for investors.

Not anymore: By some accounts, the paper said, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp. and Hartford Financial Services, are in danger of seeing most, if not all, of their investments wiped out.